Hello friends greetings for the day in the current article we will discuss about the ‘Input tax credit’ which are blocked or those input tax credit which are not eligible to be claimed by the business entity under GST.

As per 17(5) of CGST Act 2017, Input tax credit shall not be available in respect of the following:-

(a) Motor vehicles and other conveyance “except” when they are used for making the following “Taxable supply”:-

  • Further supply of such vehicle or conveyance or
  • Transportation of passengers or
  • Imparting training on driving, flying ,navigating such vehicle or conveyance
  • For transportation of Goods

In the above provision input tax credit for motor vehicles and conveyance has been blocked unless motor vehicle has been purchased to further supply or for transportation of passenger or motor vehicle has been purchased for imparting training. However input can also be claimed for transportation of goods.

Lets take some examples to understand further credit is available for truck used by goods and transport agency , credit is also available motor vehicle purchased by authorized dealer for further supply however credit is not available for car and bus used for employees transportation

(b)   The following supply of goods or services or both:-

  • Outdoor catering
  • Food and beverages
  • Beauty treatment
  • Health services
  • Cosmetic and plastic surgery
  • Membership of a club, health and fitness centre
  • Rent-a-cab, life insurance and health insurance
  • Travel benefits extended to employees on vacation such as leave or home travel concession
  • Travel benefits extended to employees on vacation such as leave or home travel concession.

Except where the above categories of goods or services or both is used by registered person for making an outward taxable supply of “The same category “ of goods or services or both or as an element of a “Composite” or “mixed” supply.

In the above cases under clause (b) credit is not eligible however in case the above Inward supplies are used for providing same category of outward taxable supply or these services are used as an element of a taxable composite or mixed supply the input tax credit can be claimed.

Input tax credit is also available if the government notifies the services which are obligatory for an employer to provide to its employees under any law for time being in force.

 Lets take some examples to understand further credit is not allowed for inward supply of food & beverages provided by restaurant, inward supply of food & beverages by big bazaar however inward supply of health care service to a hospital who is providing healthcare service the credit is allowed as inward supply is being taken to provide further supply.

(c) Works contract services when supplied for construction of an “Immovable property” other than plant and machinery except where it is an input service is used for further supply of work contract service

(d) Goods or services both received by a taxable person for construction of an immovable property other than plant and machinery on his own account including when such goods or services or both are used in the course or furtherance of business

For the above 2 clauses lets first understand “Plant and machinery” it means apparatus, equipment and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or service or both and includes such foundation and structural supports but excludes Land, building or any other civil structures, telecommunication towers and pipelines laid outside the factory premises.

Work contract- As per section 2(119) of CGST Act 2017 works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repairs, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods is involved in the execution of such contract

Input tax credit for works contract service for construction of an immovable property is not eligible. However works contract  services taken for further supply of services then credit is eligible to be taken. Lets understand with certain examples credit is blocked  for works contract service used for construction of building of manufacturer trader or service provider.

However works contract services used for construction of Plant and machinery of manufacturer, trader or service provider is allowed. Input tax credit is also allowed for works contract services used by main contractor who further supply works contract service.

(e) Goods or service or both on which tax has been paid under section 10 (Composition scheme).

(f) Goods or services or both received by a “non-resident taxable person” except on goods imported by him.

(g) Goods or services or both for “Personal consumption”

(h) Input tax credit is not available for the Goods:-

  • Goods lost
  • Stolen
  • Destroyed
  • Written off
  • Disposed off by way of gift
  • Free samples

(i) Input tax credit is not allowed for the following Taxes paid:-

  • Any GST paid under section 74 of CGST act it deals with recovery of tax not paid or short paid by reason of fraud, willful misstatement or suppression of fact.
  • Any GST paid under section 129 of CGST act, it deals with detention, seizure and release of goods in transit which had been removed in contravention of provision.
  • Any GST paid under section 130 of CGST act, it deals with the tax paid on confiscated goods in certain circumstances.

In case of any doubts in the current topic or provisions of Indirect taxation (GST and CUSTOMS) then you may contact us at abhutpurv@gmail.com

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